10 Tips to Reduce Chargebacks
Chargebacks are a constant risk for any merchant who takes card payments online or on mobile devices. If the customers dispute their charge with their issuing banks, they're reimbursed immediately and it's up to you as business owner to fight back by proving that transaction was valid - though sometimes these fights don't always work out in your favor!
The dark side of chargebacks
Merchants are finding themselves in the unenviable position of fighting against chargebacks that they never expected. As online businesses grow, so does the fraud attempts related to customer disputes over payment processing decisions - often being more complicated than accurate or legitimate claims.
Since customers became more comfortable with chargebacks, it happens that they are taking advantage of the system and use chargebacks even when they’re not justified. Such incidents are called friendly frauds and unfortunately, they are far from being small-scale – as according to Chargebacks911, 86% of all chargebacks are probable friendly fraud cases
Although it’s impossible to stop customers from filing a chargeback, below are some easy ways that can help you limit your chances of receiving a chargeback.
1) Use a recognizable name
Your descriptor is the name that shows up on your customers’ credit card statements. One of the biggest reasons merchants experience chargebacks is because their customers simply don’t recognize the charge. If you’ve branded your website something other than your legal name, use the name that appears on your website as your descriptor. Even if you list your legal name in the footer of your website, chances are, your customers won’t read it or remember the name by the time the charge pops up on their statement a few days later. So, we strongly recommend using your URL as your descriptor.
2) Be available
While some customers might instantly issue a chargeback when they don’t recognize a charge, others will actually take the time to do a little research about it. Make sure you have at least one easy way for those customers to contact you by putting up an email address or phone number on your website. Even if the customer wasn’t going to file a chargeback, being available to your customers is just a good business practice. Giving unhappy customers a way to voice their concerns could help you save the sale or at least your company’s reputation with them.
3) The more detail the better
You know that feeling when you order something online and then realize it’s not what was advertised? It can happen with any product or service, whether physical or otherwise. The best way to avoid chargebacks in these situations is by providing detailed descriptions of your products/services so people have a better idea about how they will benefit from buying them.
4) If you’re going to offer a free trial, make sure it’s really free
Don’t make customers enter their credit card information when signing up for your free trial just so you can roll them into a recurring payments plan. You may collect their information, but make sure your customers have to opt-in to your paying plan at the end of the free trial. You may lose out on those customers who would have otherwise forgotten to cancel their account, but it will guarantee that all of the customers you do get really want to use your service. Chances are the ones who forgot to cancel will either issue a chargeback or contact you for a refund anyway.
5) Don’t make a promise you can’t keep
You may be thinking that a lifetime membership would get customers on board, especially if the cost of signing up is low. But you're setting yourself up for failure by promising this service their entire life and then risking chargebacks when your business switches directions or even shuts down entirely! Promising miracle results only leaves us with less protection against bad consequences because there's no guarantee people will see what we want them to.
6) Don’t hold onto your customers’ money
The longer that money is in your possession before your customers get what they paid for, the more time your customers have to file a chargeback. Annual subscriptions is one good example of this. Your customer may have access to your service on day one, but they’ve been promised a full year of service. That’s 365 days where you run the risk of a potential chargeback. Once the chargeback has been filed, your customer gets the full amount back, not a prorated amount - even if they’ve already been using your service for 10 months.
7) Offer refunds
We can’t stress this enough. It is the number one way to reduce your chargebacks. Let’s face it - chargebacks were created to protect consumers against scammers, so they are heavily skewed in favor of your customers. If someone’s not happy with your product or service, they are going to get their money back one way or another.
8) Use 3D Secure
3D Secure is an extra layer of security that shifts the liability from the merchant to the customer’s issuing bank. If the customer confirms the transaction with the code, this only confirms his/her consent and participation in it and the card issuer has no other way but to take on responsibility and cover the costs.
9) Be proactive and use tools to deflect disputes
Nowadays there are some advanced tools that allow merchants to intervene after a customer has contacted their bank to dispute a charge, but before a chargeback actually occurs. Systems like Rapid Dispute Resolution (RDR), Order Insight and Ethoca can deflect these chargebacks by providing refunds or additional information. The merchant receives a chargeback alert at the time the cardholder files a dispute with their issuer and has an opportunity to issue a refund before the chargeback is filed. Tools like RDR, Order Insight and Ethoca can also be used to give issuing banks more information about transactions, helping customers recognize charges and helping banks identify false disputes. These systems are endorsed by the credit card schemes and are a very powerful chargeback prevention mechanism.
10) Use advanced fraud prevention system
Almost every case of true fraud will result in a chargeback, so one of the most effective ways for merchants to reduce the number of chargebacks they receive is to bolster their fraud prevention efforts. There are a variety of fraud prevention tools available to merchants these days, including two-factor authentication, device fingerprinting, velocity checking, and tools that use machine learning to identify potential fraud.
Dealing with chargebacks is one of the most challenging and costly parts of running an online business. When chargebacks start to pile up, they can severely harm your business not only financially. It’s your responsibility as a business owner to find the right ways to reduce chargebacks and limit them to the lowest possible level. But you are not alone in this fight, we at CatalystPay strive to help merchants manage such risks and thrive in the world of digital economy. Contact Us today to discuss how we can help you with your chargeback reduction strategy.